A common question of HOA directors and managers is “How often should the Association be amending its governing documents?” A common answer provided by HOA lawyers is “It depends.” This brief article outlines a few important considerations in deciding whether it is time to amend.
Overview of Governing Documents
HOA’s are governed by the following documents: (a) the Plat, (b) the Articles of Incorporation (if incorporated), (c) the Declaration of Covenants, Conditions and Restrictions (CC&Rs or Declaration), (d) the Bylaws, and (e) the Rules, Regulations, and Resolutions. This collection of documents is referred to more generally as the HOA’s governing documents.
When the governing documents are silent on a given topic an HOA should turn to the Utah Statutes for “gap-fillers”. Important Utah Statutes include the Utah Condominium Ownership Act, The Utah Community Association Act, and the Utah Revised Nonprofit Corporation Act.
HOAs often encounter problem areas in their documents when a new dispute arises in the community. For example, an ambiguity may be discovered in the architectural control provisions when an owner decides to paint their siding neon pink. Or HOA may discovery that it does not have authority to charge interest until an owner becomes delinquent in paying assessments. Likewise, an HOA may learn it is does not qualify for Fair Housing Act approval because its provisions are discriminatory to residents based on age. These are just a few examples of the many unanticipated issues that may manifest over time.
When an HOA encounters such an ambiguity, the best course of action is likely to clarify the ambiguity. Sometimes this can be done through a simple Interpretive Resolution of the Board of Directors, which can save the Association time and money associated with an official amendment. Other times, an amendment will be required. Keep in mind that the cost to litigate about ambiguous and confusing provisions frequently exceeds to cost to amend the documents. Competent legal counsel can guide an association in helping them to know whether an amendment is necessary.
Removing Unnecessary or Undesirable Restrictions
Sometimes, new leadership of an HOA decides that it no longer wants to enforce certain provisions of the Governing Documents. If those provisions are embedded in the Rules and Regulations, the new Board can likely make policy changes without seeking approval of the membership. In contrast, if the provision is stated in the CC&Rs, members of the Board of Directors should remove the provision rather than just ignore it. Simply ignoring provisions invites lawsuits against the HOA directors for failure to uphold their duties to enforce the governing documents. Similarly, if a provision is desirable but the directors want to grant exemptions or exceptions to certain members, it is prudent to amend the documents accordingly. Otherwise, the HOA may face a lawsuit from its members for selective enforcement or waiver of its right to enforce.
Conformity with State and Federal Law
State and Federal legislation can have a large impact on the governance of an HOA. However, when new legislation conflicts with the provisions in the governing documents it can be very confusing for both directors and members. As such, from time to time, HOAs should review their documents and prepare amendments to conform them to impactful legislation.
Tips for Efficient Amendments
When it comes to an amendment, there are a number of things that board members and committees can do to give the amendment the greatest chance of approval by the owners. First, an Association should determine the percentage of homeowner approval needed. Once determined, it is helpful at this point to do a straw poll to determine owner support for the conceptual amendment.
When the amendment has garnered sufficient support, it will need to be drafted and circulated to the membership and sometimes the banks holding mortgages in the community. At this point it is helpful to hold town hall meetings to discuss the changes, why the changes are necessary and advertise the amendment. Committees can then be appointed to go door to door to educate the owners and resolve concerns. This face to face interaction will encourage the owners to fill out and return the ballots giving an association a higher chance of obtaining the necessary percentage of owner approval. After all, the more work that is done to educate and help owners understand the amendments, the greater the likelihood that the amendment will pass. Finally, don’t forget to timely record the amendment with the County Recorder’s office in which the community sits. Failure to record will likely invalidate the significant investment of resources.
Because amendments to governing documents have a significant impact on owners’ property rights, it is important that associations engage competent legal counsel to assist the association through the amendment process.